Correlation Between Moderately Conservative and Mid Capitalization

Can any of the company-specific risk be diversified away by investing in both Moderately Conservative and Mid Capitalization at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Moderately Conservative and Mid Capitalization into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Moderately Servative Balanced and Mid Capitalization Portfolio, you can compare the effects of market volatilities on Moderately Conservative and Mid Capitalization and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Moderately Conservative with a short position of Mid Capitalization. Check out your portfolio center. Please also check ongoing floating volatility patterns of Moderately Conservative and Mid Capitalization.

Diversification Opportunities for Moderately Conservative and Mid Capitalization

0.97

Correlation Coefficient

Moderately Conservative  Mid Capitalization

Almost no diversification

The 3 months correlation between Moderately and Mid is 0.97. Overlapping area represents the amount of risk that can be diversified away by holding Moderately Servative Balanced and Mid Capitalization Portfolio in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Mid Capitalization and Moderately Conservative is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Moderately Servative Balanced are associated (or correlated) with Mid Capitalization. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Mid Capitalization has no effect on the direction of Moderately Conservative i.e., Moderately Conservative and Mid Capitalization go up and down completely randomly.

Pair Corralation between Moderately Conservative and Mid Capitalization

Assuming the 90 days horizon Moderately Conservative is expected to generate 1.63 times less return on investment than Mid Capitalization. But when comparing it to its historical volatility, Moderately Servative Balanced is 2.08 times less risky than Mid Capitalization. It trades about 0.34 of its potential returns per unit of risk. Mid Capitalization Portfolio is currently generating about 0.26 of returns per unit of risk over similar time horizon. If you would invest  1,226  in Mid Capitalization Portfolio on April 23, 2025 and sell it today you would earn a total of  205.00  from holding Mid Capitalization Portfolio or generate 16.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Strong
Accuracy	100.0%
Values	Daily Returns

Moderately Servative Balanced  vs.  Mid Capitalization Portfolio

Moderately Conservative

Risk-Adjusted Performance

Strong

Compared to the overall equity markets, risk-adjusted returns on investments in Moderately Servative Balanced are ranked lower than 26 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak fundamental indicators, Moderately Conservative may actually be approaching a critical reversion point that can send shares even higher in August 2025.

Mid Capitalization

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Mid Capitalization Portfolio are ranked lower than 20 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Mid Capitalization showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Moderately Conservative and Mid Capitalization

The main advantage of trading using opposite Moderately Conservative and Mid Capitalization positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Moderately Conservative position performs unexpectedly, Mid Capitalization can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Mid Capitalization will offset losses from the drop in Mid Capitalization's long position.

The idea behind Moderately Servative Balanced and Mid Capitalization Portfolio pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.